Former Refco's Inc chairman Phillip Bennett pleaded guilty to bank fraud, conspiracy, money laundering and 17 other charges in a scheme that cost investors more than US$2.4 billion.
Bennett's plea yesterday came a month before he was scheduled to go on trial in New York for deceiving banks, auditors and investors, including Boston-based buyout firm Thomas H Lee Partners LP, during an eight-year accounting fraud.
Two colleagues, former Refco finance chief Robert Trosten and former president Tone Grant, still face a March 17 trial.
Under federal guidelines, Bennett faces life imprisonment with a maximum penalty of 315 years covering all counts as well as forfeiture of US$2.4 billion, prosecutors said. Bennett, whose lawyer says he has US$20 million in assets, is scheduled to be sentenced on May 20.
After increasing bail, the judge rejected a request by prosecutors to take Bennett into custody.
"I know I was wrong, and I deeply regret it," Bennett, 59, told US District Judge Naomi Buchwald in Manhattan federal court, his voice cracking as he did.
"I take full responsibility for my conduct. I wish to publicly apologize to my family and to all those I've harmed," he said.
Bennett's lawyer Gary Naftalis told the US Attorney's Office yesterday that his client wanted to plead guilty, a prosecutor told the judge. The plea did not involve any promises on either side regarding leniency or cooperation.
Once the biggest independent US futures trader, Refco collapsed in October 2005, two months after raising US$670 million in an initial public offering. The New York-based firm, which also provided clearing and prime brokerage services, filed for bankruptcy days after disclosing that a Bennett-controlled firm owed hundreds of millions of dollars to Refco.
Bennett, a UK citizen, was charged in a 20-count indictment that included charges of securities and wire fraud. The former CEO has been free on bail since his 2005 arrest. Grant and Trosten pleaded not guilty.
At least 16 corporate executives have been sentenced to 20 years or more in prison since 2003, court records showed. Daniel Marino, the former finance chief of bankrupt hedge-fund firm Bayou Group LLC, was sentenced to 20 years in prison last month for defrauding investors of more than US$400 million.
Former WorldCom Inc chairman Bernard Ebbers received 25 years for accounting fraud and former Enron Corp CEO Jeffrey Skilling got a 24-year term for the same crime.
In the post-Enron era of corporate crime prosecutions, defendants such as Bennett face the "possibility that their residence in the Bureau of Prisons is the last residence they're going to have," Buchwald said at the plea hearing.
Bennett, a graduate of Cambridge University, built Refco into the largest independent futures brokerage in the US. He joined the firm in 1981 and served as president, chief executive officer and chairman since September 1998. Along with Grant, who also served as president, Bennett transformed Refco from a firm that focused on trading for itself to one that executed transactions for clients.
Bennett was arrested on Oct. 12, 2005, and has been free on bail and living at home in Somerset County, New Jersey, since November 2005. His salary and bonus were US$3.3 million that year.
Santo Maggio, the former CEO of Refco's offshore unit pleaded guilty to fraud and conspiracy on Dec. 19. His guilty plea came a day after US prosecutors unsealed an 11-count fraud and conspiracy indictment against former Refco outside lawyer Joseph Collins.
The attorney, accused of helping hide hundreds of millions of dollars in debt from investors, denied wrongdoing.
The roots of the case stretch back to 1997, when Refco began hiding massive losses sustained by clients in the Asian debt crisis.
With its viability threatened, Refco began masking its true performance by moving more than US$1 billion in debt off the company's books to a Bennett-controlled entity, Refco Group Holdings Inc, prosecutors said.
In return, Refco Group Holdings gave Refco worthless IOUs, prosecutors said.
The indictment said the company hid the scam from Thomas H Lee, which paid US$507 million for a 57 percent stake in Refco in 2004; from banks and debt holders that extended more than US$1.4 billion in financing in 2004; and from investors who paid US$583 million for shares when Refco went public.
Bennett's ultimate aim was to lure a potential purchaser into buying the firm at a price that would pay off Refco's debt and ensure a profit to its owners, prosecutors said.
Bennett received help in the scam from some customers and from Vienna-based Bawag PSK Bank, which bought a stake in Refco in 1999, prosecutors said. In 2006, Bawag agreed to pay US$675 million to avoid criminal prosecution. The payment also resolved lawsuits by the Securities and Exchange Commission and investors.
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